JCPOA Implementation Day Ushers in Extensive, but Still Risk-Fraught, Iran Sanctions Relief

Introduction

On January 16, 2016, the International Atomic Energy Agency (IAEA) confirmed that Iran has met the first round of its nuclear-related commitments under the Joint Comprehensive Plan of Action (JCPOA) – the agreement reached in July 2015 between Iran and the “P5+1” countries (the United States, the United Kingdom, France, Germany, China, and Russia). See our earlier advisory. The confirmation on January 16 that Iran met its commitments constituted “Implementation Day” of the JCPOA, and the United States and the European Union officially lifted or suspended “nuclear-related” sanctions against Iran.

Executive Summary

Here are some key takeaways regarding implementation of the JCPOA:

• The European Union has lifted most sanctions against Iran, and the United States has lifted its nuclear-related “secondary” sanctions that previously affected European and other foreign companies. That means that foreign companies that are not owned or controlled by US persons can pursue business opportunities in Iran largely unconstrained.
• For the first time since 2012, foreign subsidiaries of US companies are able to pursue a broad range of opportunities in Iran in accordance with a new OFAC general license, subject to certain constraints spelled out in that license. US companies may alter their policies to allow their subsidiaries to pursue such opportunities, and may provide “passive” support by allowing their subsidiaries to use shared IT systems such as corporate email and enterprise resource planning systems, but may not otherwise support, assist, or facilitate the activities of their foreign subsidiaries.
• With regard to sanctions relief for US persons, the United States has established a favorable licensing policy for exports of commercial aircraft to Iran, and has issued a general license authorizing certain Iranian imports.
• The US primary embargo against Iran remains in effect. This means that US companies and individuals, wherever located, are still subject to significant constraints regarding trade with Iran, except in certain narrow sectors of trade. 
• Despite the relief accorded to non-US persons and non-US affiliates of US companies, careful due diligence on counter-parties and managing any nexus to US goods, technology and services will remain critical to compliance.

US/EU Instruments Implementing the JCPOA

To implement US sanctions relief commitments under the JCPOA, President Obama issued an Executive Order (EO) revoking EOs 13574, 13590, 13622 and 13646, and amending EO 13628, with respect to Iran. Furthermore, the US Department of the Treasury, Office of Foreign Assets Control (OFAC) took certain measures to implement sanctions relief, including:

• Removing the individuals and entities identified in Attachment 3 to Annex II of the JCPOA from the SDN List and other restricted lists
• Issuing Guidance explaining the nature and extent of US sanctions relief (OFAC Guidance)
• Issuing a General License authorizing non-US subsidiaries of US companies to engage in a broad range of Iran-related activity, subject to certain limitations
• Publishing a Statement of Licensing Policy relating to the export and reexport of passenger aircraft and related parts and services
• Issuing a General License authorizing imports of Iranian foodstuffs and carpets
• Publishing Frequently Asked Questions providing interpretive guidance (OFAC FAQs)  

In addition, certain contingent waivers of statutory sanctions provisions, previously issued on “Adoption Day” (October 18, 2015), became effective as of Implementation Day.

EU sanctions relief under the JCPOA is more sweeping. As discussed in more detail below, all European Union nuclear-related economic and financial sanctions have been terminated with respect to Iran, with only an arms embargo and certain other proliferation-related sanctions remaining in force. To implement this relief, the Council of the European Union (the Council) issued Council Decision (CFSP) 2016/37, which provides that Council Decision (CFSP) 2015/1863 (published on Adoption Day) is effective as of January 16, 2016. This in turn makes effective (on the same date) Council Regulations 2015/1861 and 2015/1862, which were adopted pursuant to Council Decision (CFSP) 2015/1963 to withdraw the sanctions. The EU issued non-binding guidance in the form of an Information Note on the EU sanctions regime. The Council also introduced an authorization regime for reviewing and deciding on nuclear-related transfers to, or activities with, Iran not covered by UNSCR 2231 (2015), consistent with the JCPOA.

Other countries have also taken immediate steps to follow the United States and the European Union. For example, the Swiss Federal Council announced that certain Swiss sanctions have been lifted related to Iran, following the promulgation of a new Ordinance of Measures on January 17, 2016. 

US Sanctions Relief

Effective January 16, 2016, the United States ceased to apply all nuclear-related sanctions against Iran as specified in the JCPOA. Most of the sanctions relief applies to secondary sanctions directed at non-US persons. Additionally, the United States significantly has eased sanctions applicable to non-US subsidiaries of US companies, subject to certain limitations. Furthermore, US persons benefit from certain narrowly targeted categories of sanctions relief  including (1) US citizens and US lawful permanent residents, wherever acting in the world; (2) US-incorporated companies and their foreign branch offices; and (3) individuals or entities located in the United States.

Secondary Sanctions Relief

The United States has ceased the application of most secondary sanctions directed at non-US persons, including non-US subsidiaries of US companies (which have received separate and slightly more limited sanctions relief under an OFAC general license discussed in the section below). This sanctions relief removes restrictions on the following activities:

• Financial and banking:
  • Transactions and dealings with individuals and entities set out in Attachment 3 to Annex II of the JCPOA, including the Central Bank of Iran (CBI) and other Iranian financial institutions, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), National Iranian Tanker Company (NITC), and certain other  designated individuals and entities that were removed from the SDN List on Implementation Day
  • Transactions related to the Iranian rial
  • Providing US banknotes to the Government of Iran (GOI)
  • Dealing in Iranian sovereign debt, including government bonds
  • Providing financial messaging services (such as SWIFT messaging) to the CBI and Iranian financial institutions
  • Bilateral trade in Iranian revenues held abroad 

As a result, non-US financial institutions can conduct transactions (including transfers) with respect to CBI’s previously restricted funds held abroad, unless such transactions involve persons that remain listed on the SDN list. US persons continue to be prohibited from engaging in the foregoing activities, and transactions related to these activities remain prohibited from transiting the US financial system. Notably, the United States has not reinstated the so-called “U-turn general license,” meaning that US financial institutions remain prohibited from clearing transactions involving Iran unless the transaction is exempt or authorized by a general or specific license.  

• Energy and petrochemicals:
  • Purchase, acquisition, sale, transport or marketing of Iranian petroleum, petrochemical products, and natural gas
  • Investment in the Iranian energy sector
  • Provision of refined petroleum and petrochemical products to Iran
  • Providing significant support, goods, and services to the Iranian energy sector, including the NIOC, NICO, and the National Iranian Tanker Company (NITC)

• Shipping, shipbuilding, and ports:
  • Transactions with Iran’s shipping and shipbuilding sectors and port operators, including the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line, NITC and operators of the port of Bander Abbas (provided that such persons are no longer controlled by a person on the SDN List)
  • Ownership, operation, control, or insurance of a vessel used to transport crude oil, petroleum products, petrochemical products, or natural gas to or from Iran, or the sale, leasing, or provisions of such vessels to Iran
  • OFAC has clarified that since Tidewater Middle East Co., a port operating company that will remain on the SDN List, does not appear to be the port operator of Bandar Abbas, non-US persons can conduct trade through Bandar Abbas.

• Gold and precious metals:
  • Trade with Iran in gold and other precious metals, including silver, platinum, iridium, osmium, palladium, rhodium, and ruthenium

• Software and metals:
  • Supply to Iran of graphite, raw or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes provided that such transaction are “consistent with the JCPOA” 
  • OFAC has clarified that the following transactions are deemed not to be consistent with the JCPOA with regard to software and metals:
    • (1) transactions with persons on the SDN List, including the Islamic Revolutionary Guard Corps (IRGC);
    • (2) transfers of such materials or software (as identified by the US Department of State in published guidance) for use in the military or ballistic missile programs of Iran;and
    • (3) transfers that have not been approved by the nuclear-related procurement channel established by Annex IV of the JCPOA and United Nations Security Council Resolution (UNSCR) 2231 (2015).

• Automotive:
  • Supply of goods and services used in connection with Iran’s automotive sector 

• Insurance:
  • Provision of underwriting services, insurance, or reinsurance for activity that is consistent with the JCPOA discussed in the foregoing sections, including activities with individuals and entities set forth in Attachment 3 to Annex II of the JCPOA, provided that the transactions do not involve persons that remain on the SDN List and the claim payment does not involve a US person. This includes provision of underwriting services, insurance, or reinsurance for vessels transporting crude oil from Iran. Claims can be paid for events that occurred prior to Implementation Day, provided that the underlying activity is not sanctionable at the time of payment or related services.
  • US insurers and re-insurers remain prohibited from providing underwriting services, insurance, or reinsurance related to non-sanctionable activities of non-US persons, except to provide travel insurance that is exempt under OFAC regulations as ordinarily incident to travel.

Designations

The United States has removed the individuals and entities listed on Attachment 3 to Annex II of the JCPOA from the SDN List, Foreign Sanctions Evaders (FSE) List, and the Non-SDN Iran Sanctions Act (NS-ISA) List, as applicable. Non-US persons are no longer subject to secondary sanctions for engaging in transactions with over 400 individuals and entities that the US removed from the SDN List on the Implementation Day.

There remain, however, more than 200 Iranian and Iran-related persons on the SDN List who remain subject to secondary sanctions. Non-US persons can be sanctioned for knowingly facilitating significant financial transactions with or providing material or certain other support to these persons and entities that remain or in the future will be placed on the SDN List. Secondary sanctions also attach to activities with the IRGC and its SDN List designated agents or affiliates. The SDN List entry for these individuals and entities that remain subject to secondary sanctions will be marked as “Subject to Secondary Sanctions” in the “Additional Sanctions Information” field. However, it should be noted that a person will not be subject to sanctions for dealing with a subsidiary of an SDN if that subsidiary is not itself listed as an SDN; in other words, an Iranian individual or entity needs to be listed specifically in order to trigger secondary sanctions for a non-US person (but see the discussion below regarding how this applies differently to non-US subsidiaries of US companies).

US persons continue to be generally prohibited from dealing with Iranian or Iran-related persons on the SDN List, as well as any entity owned 50% or more by any combination of such SDNs. Additionally, US persons are prohibited from directly or indirectly engaging in any transaction with, and must continue to block the property and interest in property of, persons blocked under EO 13599, which blocks the GOI. This means that US persons must block the property and interests in property of any person who meets the definition of the “Government of Iran,” including the Central Bank of Iran and all Iranian financial institutions, even where that person has been removed from the SDN List. In particular, OFAC has identified individuals and entities listed in Attachment 3 of Annex II of the JCPOA that have been removed from the SDN List, but remain blocked under EO 13599 for US persons, by marking an asterisk next to their names. See the “List of Persons Identified as Blocked Solely Pursuant to Executive Order 13599” that OFAC has published.

General License for Non-US Subsidiaries of US Companies

Under the JCPOA, the United States committed to license non-US subsidiaries of US companies to engage in activities with Iran that are “consistent with” the JCPOA. It was unclear what the scope of this relief would be.  Section 560.215 of ITSR prohibited non-US entities owned or controlled by US persons from engaging in any transaction with Iran that was prohibited for US persons. 

OFAC has now issued General License H as part the Iranian Transactions and Sanctions Regulations (ITSR) and that General License provides authorization to non-US subsidiaries of US companies to engage, either directly or indirectly, in transactions with the GOI and any person subject to the jurisdiction of the GOI that would otherwise be prohibited by Section 560.215 of ITSR.   

The General License also provides a limited authorization for US persons to (i) establish operating policies and procedures for non-US subsidiaries to engage in authorized transactions, and (ii) make available automated (i.e., operating without human intervention) and globally integrated (i.e., available to and used by the global organization) business support systems that are required to process information related to authorized transactions between the non-US subsidiaries and Iran. US persons remain otherwise subject to the ITSR prohibition on “facilitation” or “approval” of activities by foreign persons, including non-US subsidiaries operating under General License H, that otherwise would be restricted if performed by a US person or from the United States.

The General License does not authorize foreign subsidiaries to engage in the following activities, which remain subject to applicable restrictions under the ITSR:

• Exports from the United States to Iran of goods, technology, or services with knowledge that they will be supplied exclusively or predominantly to Iran or the GOI without authorization from OFAC (ITSR § 560.204)
• Reexports to Iran from a third country of any US export-controlled goods, technology, or services, i.e., that would require a license (ITSR § 560.205);
• Transfers of funds to, from, or through a US depository institution or US-registered broker or dealer in securities
• Transactions involving any person on the SDN List (including, arguably, entities owned 50 percent or greater by SDNs) or on the FSE List, other than those designated as GOI under the ITSR
• Activity involving any item “subject to” the Export Administration Regulations (EAR) without proper authorization under the EAR
• Transactions involving a person whose export privileges have been denied pursuant to Parts 764 or 766 of the EAR, without proper authorization from the US Department of Commerce, Bureau of Industry and Security (BIS)
• Transactions involving any military, paramilitary, intelligence, or law enforcement entity of the GOI, or any official, agent, or affiliate
• Certain nuclear activity that is subject to the procurement channel established under UNSCR 2231 (2015) and Annex IV of the JCPOA and has not been approved through the procurement channel process
• Any activity that is sanctionable under US sanctions targeting Iran’s WMD proliferation activity, support for terrorism, destabilization of Syria and Yemen, and human rights abuses

Several aspects of General License H are notable. First, based on the limitations set out above, the activity authorized for non-US subsidiaries of US companies is narrower than the activity authorized for other non-US persons under the JCPOA. Notably, the General License does not authorize transactions with the Iranian security services and their affiliates, which is a broader restriction than the secondary sanctions that target non-US persons for dealing with the IRGC and their affiliates named on the SDN List. Second, subsidiaries engaging in activity authorized under General License H should take care to observe the export-related restrictions noted above; although reexports of EAR99 items to Iran are not controlled under the EAR, the interplay between the ITSR and the EAR is complex in this area, and caution is warranted. Third, US parent companies and US person employees should avoid engaging in activity in support of subsidiaries’ Iran-related activity that could constitute prohibited “facilitation” or “approval” under the ITSR. Fourth, it appears that non-US subsidiaries of US companies may be restricted from dealing with unlisted subsidiaries of Iranian SDNs, while other non-US persons are not.

General License Authorizing Imports of Certain Foodstuffs and Carpets

Under the JCPOA, the United States agreed to license imports of Iranian-origin carpets and foodstuffs, including pistachios and caviar. Effective January 21, 2016, OFAC has promulgated a General License at ITSR § 560.534 that authorizes importation into the United States of Iranian-origin foodstuffs intended for human consumption classified under Chapters 2-23 of the Harmonized Tariff Schedule of the United States (HTS), and carpets and other textile floor covering and carpets used as wall hangings that are classified under Chapter 57 (Carpets and Other Textile Floor Covering) or Heading 9706.00.0060 (antiques of an age exceeding one hundred years other than silverware and furniture). The General License also authorizes US persons to engage in transactions or dealings related to such Iranian-origin items, as long as the activity does not involve the supply of goods, services, or technology to Iran, the GOI, an Iranian financial institution, or any other blocked person or entity, unless the transaction is “ordinarily incident” to an authorized transaction (ITSR § 560.405) or involves processing transfer of funds to or from Iran that is necessary to give effect to underlying authorized transaction (ITSR § 560.516). Importation of Iranian-origin foodstuff and carpets is still subject to US customs and other applicable laws. The General License also authorizes US depository institutions to process letters of credit for payments of, and US persons to act as brokers for the purchase and sale of Iranian-origin foodstuffs and carpets.

The General License effectively reinstates the authorization to import Iranian-origin foodstuffs and carpets as provided in Section 560.534 that was repealed following the enactment of the Comprehensive Iran Sanctions and Divestment Act (CISADA).

Statement of Licensing Policy Relating Export or Re-Export of Commercial Passenger Aircraft

Under the JCPOA, the United States agreed to license the export, reexport and transfer of commercial passenger aircraft and related parts and associated services to Iran. This commitment built upon the interim relief that was available under the Joint Plan of Action (JPOA) interim agreement that authorized the provision to Iran of spare parts necessary for aircraft safety.

OFAC has now released a Statement of Licensing Policy that establishes a favorable licensing regime to allow US persons and non-US persons (where there is a “nexus to US jurisdiction,” such as applicable US reexport control or a non-US item that incorporates more than 10 percent US content) to request a specific license from OFAC to (1) export, reexport, sell, lease or transfer to Iran commercial passenger aircraft for exclusively civil aviation end-use, and spare parts and components for such aircrafts, and (2) provide associated services (including warranty, maintenance, repair and safety-related inspections) related to the foregoing. The transaction must not involve any person on the SDN List, and any license issued by OFAC will include conditions to that effect.  OFAC will evaluate license applications in light of the Iran-Iraq Arms Nonproliferation Act and other US applicable laws. Exports and reexports to individuals and entities on the BIS Denied Persons List or, in some cases, on the Entity List will require separate authorization from the Commerce Department. 

Under the JCPOA, if the United States determines that licensed aircraft, goods, or services have been used for purposes other than exclusively civil aviation end-use, or have been provided to persons on the SDN List, then the United States may cease in whole or in part licensing the export and reexport to Iran of passenger aircraft, related parts and associated services.

Iran Sanctions That Remain in Effect Post-Implementation Day

As explained above, the United States has provided relief from most nuclear-related secondary sanctions under the JCPOA, and also has provided certain sanctions relief applicable to US persons and more significantly to non-US subsidiaries of US companies. However, it is important to note that certain types of US sanctions against Iran remain in effect.

First, the US trade embargo against Iran remains in effect. US persons generally are prohibited from engaging in transactions or dealings with Iran or its government, unless an OFAC license applies. This includes restrictions on imports from Iran, exports and reexports to Iran (other than items such as agricultural commodities, medicines, basic medical devices, software to facilitate communications, etc.), transactions or dealings in Iranian-origin goods and services, new investment in Iran, facilitation or approval of the foregoing, or evasion or avoidance of the restrictions. Furthermore, individuals and entities that meet the definition of the GOI, as well as all Iranian financial institutions, remain subject to blocking whether or not they have been identified by OFAC as such under EO 13599 or the SDN List. In addition, US persons remain prohibited from engaging in any conduct that seeks to evade US sanctions on Iran.  

Second, although General License H lifts most sanctions applicable to non-US subsidiaries of US companies, the general license sets out certain limitations as noted above.

Third, US secondary sanctions continue to restrict non-US persons from providing significant support to non-GOI Iranian SDNs and to the IRGC and its designated agents and affiliates. Regarding Iranian SDNs, it should be noted that while OFAC has de-listed approximately 400 Iranian SDNs, approximately 200 SDNs remain on the list, and the President or OFAC can make further designations of Iranian persons based on Iran’s support for terrorism, proliferation activities, destabilization of Syria and Yemen, and human rights abuses. Furthermore, regarding IRGC sanctions, while secondary sanctions appear to restrict only transactions with designated IRGC affiliates, OFAC has described the IRGC as “Iran’s most powerful economic actor,” and further designations are possible.

Fourth, non-US persons remain subject to US export controls under the ITSR and EAR to the extent they knowing deal in US-origin items or other items “subject to” the EAR for supply exclusively or predominantly to Iran, and  may not export or reexport controlled items to Iran without proper authorizations.

Fifth, non-US persons remain subject to certain secondary sanctions to the extent they facilitate certain illicit activity on the part of Iran. Under CISADA, non-US financial institutions can be sanctioned where they facilitate Iran’s efforts to acquire WMD or support terrorism. Furthermore, under the Iran Threat Reduction and Syria Human Rights Act (ITRSHRA) of 2012, non-US persons are subject to sanctions where they provide vessels, shipping services, and insurance for the foregoing to transport goods to Iran to be used in proliferation-related and terrorism-related activities.

SEC Reporting Requirement

Under the JCPOA, the US government did not commit to modify Section 219 of the ITRSHRA, or the disclosure requirement of the US Securities Exchange Commission (SEC) that became effective on February 6, 2013. Currently, the Securities Exchange Act (SEA) of 1934 obligates any “issuer” required “to file an annual or quarterly report” to disclose that it:

• “knowingly engaged in an activity” related to: 
  • (1) investments or transactions with the energy or advanced weapons sectors sanctionable under sections 5(a) and 5(b) of the Iran Sanctions Act (ISA);
  • (2) GOI efforts to develop WMD or provide support to terrorist organizations, or activities of persons subject to certain UN Security Council sanctions, as described in sections 104(c)(2) and (d)(1) of the CISADA;
  • (3) transfer to Iran of goods or technology likely to be used by the GOI to commit serious human rights abuses, as described in section 105A(b)(2) of the CISADA; or
•  “knowingly conducted any transaction or dealing with”:
  • (4) Blocked persons or individuals/entities named as Specially Designated Nationals (SDNs) as:
    • (a) Terrorists or persons supporting terrorism under EO 13224;
    • (b) WMD proliferators under EO 13382; or
    • (c) The Government of Iran, as defined by the Iranian Transaction and Sanctions Regulations.

Based on limited SEC guidance, if issuers and their foreign affiliates have a general or specific license from the US Government to engage in a transaction with the GOI, there is no requirement to disclose that transaction so long it does not also involve any of the foregoing non-GOI related activities. Consequently, transactions and activities now authorized for non-US subsidiaries of US persons under General License H involving the GOI would no longer appear to be subject to disclosure. However, it appears that while the JCPOA suspended ISA § 5(a), activities described in that provision still must be disclosed. In addition, the other underlying statutory provisions were not subject to JCPOA sanctions relief, so foreign affiliates remain subject to secondary sanctions, and issuers remain subject to disclosure requirements if their foreign subsidiaries undertake those activities.

State and Local laws

As previously advised, CISADA-authorized state divestment laws and procurement bans remain in effect after Implementation Day; the JCPOA does not supersede such laws, as it is an Executive Agreement instead of a treaty.  Instead, the JCPOA merely calls on the United States to “actively encourag[e]” state and local officials to avoid taking measures inconsistent with the shift in US sanctions policy toward Iran.

Currently, approximately half of US states have enacted Iran-related sanctions laws, including  (1) divestment laws authorizing public investment institutions (e.g., pension funds) to divest from companies that conduct business in Iran; and (2) procurement bans that prohibit public state entities from offering procurement contracts to companies that conduct business in Iran. Some states have enacted both types of laws. In response to the announcement of the JCPOA, several state and local government officials expressed their intention to continue enforcing these state laws. In addition, several members of Congress and state attorneys general have urged states to enact more divestment laws and procurement bans, although as of yet, no new laws have been passed.

Importantly, state divestment laws and procurement bans are tailored by state and therefore present different levels of risk for companies contemplating conducting business in Iran.  For example, California’s divestment law allows its state pension board to continue investing in companies conducting Iran-related business authorized by the US government, e.g., JCPOA-consistent activities. However, New York’s procurement ban provides no such carve-out.

It is not yet clear whether states will continue enforcing their divestment laws and procurement bans after Implementation Day, and their level of enforcement could depend on individual intra-state politics. Nevertheless, companies planning to engage in business with Iran should be aware of that these state laws remain in effect and could impact their business opportunities with those states.

Snapback

The JCPOA provides for a dispute resolution mechanism and, if attempts at dispute resolution fail, re-imposition of the suspended sanctions (so-called “snapback”) along with Iran’s stated intention to cease performing its nuclear-related commitments. The JCPOA grants the power to trigger snapback to any one of the P5+1 countries or Iran, in their unilateral discretion, but with an expectation of good faith. The agreement provides that if any of the parties “believed” that another party is not meeting its commitments, they can refer the issue to the Joint Commission to try to resolve it. The Joint Commission would have 15 days, or longer if approved by consensus. If not resolved by the Joint Commission, the party can then refer the issue to Ministers of Foreign Affairs (including the US Secretary of State), who would then have the same time period to try to reach a resolution. Either in parallel with or instead of a referral to Ministers of Foreign Affairs, either party can request that an Advisory Board, consisting of one member from each of the two disputing parties and “a third independent member,” issue a non-binding opinion on the issue within 15 days, which the Joint Commission would have five days to review. 

If the Joint Commission and the Ministers ultimately cannot resolve the issue “to the satisfaction of the complaining participant, and if the complaining participant deems the issue to constitute significant non-performance,” that participant can cease performing its commitments under the JCPOA, in whole or in part, “and/or” notify the UN Security Council (UNSC) that “it believes the issue constitutes significant non-performance.” In other words, the parties can opt for unilateral snapback or seek re-imposition of UNSC sanctions, or both. If the country chooses to notify the UNSC, that triggers a vote “on a resolution to continue the sanctions lifting.” If such a resolution, which the United States or any other UNSC permanent member could unilaterally veto, does not pass within 30 days of the notification, the previous UNSC sanctions would be re-imposed, unless the UNSC “decides otherwise” (again, which the United States or other permanent members could veto). 

If the snapback were to occur, it would not be retroactive. The JCPOA provides that in the event of a re-imposition of UNSC sanctions, those measures “would not apply with retroactive effect to contracts signed between any party and Iran or Iranian individuals and entities prior to the date of application, provided that the activities contemplated under and execution of such contracts are consistent with this JCPOA and the previous and current UN Security Council resolutions.” 

OFAC has stated in its FAQs that it is “unable to predict how far in advance notice will be given in the event that sanctions snap back,” but in the event of the snapback, “the United States has committed not to retroactively impose sanctions for legitimate activity undertaken after Implementation Day.” OFAC is clear that “transactions conducted after the snapback occurs, however, could be sanctionable to the extent they implicate activity for which sanctions have been re-imposed.” 

OFAC is also clear that there will be no “grandfathering” of contracts that were signed prior to the snapback, but it suggests there may be a wind-down period allowed, saying the US government has a “past practice of working with US or third-country companies to minimize the impact of sanctions on the legitimate activities of those parties undertaken prior to the imposition of sanctions, and we anticipate doing the same in the event of a JCPOA sanctions snapback.”

Transition Day

According to Annex V of the JCPOA, Transition Day will occur eight years after Adoption Day, or after the IAEA determines that all nuclear material in Iran “remains in peaceful activities,” whichever is earlier.  In addition to the EU commitments on Transition Day (described below), the United States has committed to “seek such legislative action as may be appropriate to terminate, or modify to effectuate the termination of,” statutory secondary sanctions provisions. (Although for sanctions on software and metals in Section 4.6 of Annex II, this obligation only applies “in connection with activities consistent with this JCPOA, including trade with individuals and entities set forth in Attachments 3 and 4 to Annex II.”) The United States has also committed to remove certain individuals and entities from the SDN List and/or the FSE List. For its part, Iran has committed on Transition Day to “seek, consistent with the Constitutional roles of the President and Parliament, ratification of the Additional Protocol.”

EU Sanctions Relief

Scope of Sanctions Relief

As outlined in our previous advisory, the EU has lifted all of its economic and financial sanctions in relation to Iran’s nuclear weapons program on Implementation Day. Thus, the following range of activities and associated services are now permitted:

• Financial, banking and insurance measures:
  • The transfer of funds between EU persons, entities or bodies, including EU financial and credit institutions, and non-listed Iranian persons, entities or bodies including Iranian financial and credit institutions. It is important to note, however, that EU financial institutions will have to ensure that they do not clear transactions through other financial systems or with other entities, where such activity is prohibited (in this regard reference is made in the Information Note to the US sanctions regime).
  • The opening of branches, subsidiaries or representative offices of non-listed Iranian banks in Member States.  EU financial institutions are permitted to open branches, subsidiaries or representative offices in Iran.
  • Provision of export credit, guarantees or insurance and reinsurance, and other financial support, such as grants, financial assistance and concessional loans to the Government of Iran.
  • The supply of specialized financial messaging services, including SWIFT, is allowed for Iranian individuals, entities and financial institutions, including the Central Bank of Iran, which are no longer subject to restrictive measures.
  • Those persons and entities that have been removed from the restrictive measures list as of Implementation Day have immediate access to their funds, which were frozen, on that same day.
• Oil, gas and petrochemical sectors:
  • Import, purchase, swap and transport of crude oil and petroleum products from Iran.
  • Export (by EU persons) of oil, gas and petrochemical equipment or technology; provision of related technical assistance including training to any Iranian person, in or outside Iran, or for use in Iran.
  • Investment in Iran’s oil, gas, and petrochemicals sectors. It is notable that the Iranian National Oil Company and its listed subsidiaries and affiliated companies are no longer subject to restrictive measures, therefore transactions are allowed with these entities.
• Shipping, shipbuilding and transport sectors:
  • Sale, supply transfer or export of naval equipment and technology for ship building, maintenance or refit to Iran or to any Iranian person engaged in the sector.
  • Design construction – or participation in the design and construction – of cargo vessels and oil tankers for Iran or Iranian persons.
  • Provision of vessels; designed or used for the transport or storage of oil and petrochemical products to Iranian persons entities or bodies.
  • Provision of flagging and classification services.
  • Cargo flights operated by Iranian carriers or originating from Iran have access to EU Members States airport.
  • Cargos to and from Iran of previously prohibited items will no longer be subject to inspection seizure and disposal by EU Member States.
• Gold, other precious metals (including diamonds), banknotes and coinage:
  • The sale, supply, purchase, export, transfer or transport of these items, and provision of related brokering, finance and security services, to, from or for the Government of Iran, its public bodies, corporations and agencies, or the Central Bank of Iran, is now permitted.
  • The delivery of newly printed or minted banknotes and coinage for the Central Bank of Iran is permitted.
• Metals and software:
  • The sale, supply, transfer or export of certain graphite and raw or semi-finished metals to any Iranian person, entity or body for use in Iran is no longer prohibited but is now subject to a prior authorization regime.
  • The sale, supply, transfer or export of Enterprise Resource Planning software, including updates, to any Iranian person, entity or body for use in Iran is connection with activities which are consistent with the JCPOA is no longer prohibited but is now subject to a prior authorization regime, if that software is designed specifically for use in nuclear and military industries.
• De-listing of individuals, entities and bodies:
  • Attachment 1 to Annex II of the JCPOA lists the individuals, entities and bodies who are no longer subject to asset freezes and travel bans.

Except for certain ongoing restrictions on particular items described below, these changes will make Iran essentially a “normal” country for purposes of export of dual-use goods under the EU Dual-Use Regulation (Council Regulation (EU) No 267/2012 (as amended)), subject to the same general controls as most countries (other than EU member states and certain favored destinations).

Iran Sanctions That Remain in Effect Post-Implementation Day

An EU arms embargo and certain proliferation-related sanctions and restrictions will remain in place after Implementation Day, with the introduction of a requirement for prior authorization for some transactions.

• Arms embargo: this covers all goods which are included in the EU common military list. The prohibition on the sale, supply, transfer, directly or indirectly, or procurement of arms and related material of all types, including weapons and ammunition, military vehicle and equipment, spare parts and related material and the provision of related services continues to apply after Implementation Day.
• Proliferation-related sanctions
  • Missile technology sanctions: the prohibition on the sale, supply, transfer, directly or indirectly, of the goods and technology listed in Annex III to Council Regulation (EU) No 267/2012 (as amended) (which contains the Missile Technology Control Regime list), and any other item that an EU Member State determines could contribute to the development of nuclear weapon delivery systems and the provision of associated services, continues to apply after Implementation Day.
  • Individuals and entities subject to restrictive measures: the individuals and entities listed in Attachment 2 to Annex II of the JCPOA remain subject to an asset freeze, visa ban and prohibition of the provision of specialized financial messaging services (SWIFT). Notably, a number of Iranian banks remain listed - Ansar Bank, Bank Saderat Iran and Bank Saderat Plc, Mehr Bank, Bank Sepah and Bank Sepah International.
  • Nuclear transfers and activities: concerning certain goods and technology listed in Annexes I [Nuclear Suppliers Group List] and II to Council Regulation (EU) No 267/2012  (as amended), and associated financial and technical services and related investments, are subject to prior authorization to be granted on a case-by-case basis by the competent authorities of the Member State, following the Member State’s request for authorization from the UN Security Council. The other dual-use goods and technology listed under Annex II are those that could contribute to re processing, enrichment-related, heavy water-related or other activities inconsistent with the JCPOA.
  • Metals and software: the sale, supply, transfer or export of Enterprise Resource Planning software, designed specifically for use in nuclear and military industries, and the provision of associated services; and the sale, supply, transfer or export of certain graphite and raw or semi-finished metals and the provision of associated services, will be subject to prior authorization to be granted on a case-by-case basis by the competent authorities of the Member State.

The sanctions and restrictions listed above will all remain in place until Transition Day. Therefore, measures concerning the inspection of cargoes to/from Iran and those related to the provision of bunkering or ship services will continue to apply after Implementation Day in relation to these items which continue to be prohibited.

• Sanctions not covered by JCPOA: sanctions which have been imposed on grounds other than nuclear non-proliferation – i.e. in respect of the human rights situation in Iran, and other grounds which are not subject to the JCPOA – will remain in place. These measures include the asset freeze and visa ban on 84 individuals and one entity; the ban on export of equipment which could potentially be used for internal repression and equipment for monitoring telecommunications (see Council Regulation (EU) No 359/2011); and Iranian individuals who are listed under the EU terrorism and Syria sanctions regime.

Snapback

The Council issued a Declaration on October 18, 2015, noting that the commitment to lift all EU nuclear-related sanctions against Iran is without prejudice to the dispute resolution mechanism specified in the JCPOA and to the reintroduction of EU sanctions in the case of significant non-performance by Iran of its commitments under the JCPOA (EU snapback). An EU snapback would take the form of decision by the Council, based on a recommendation by the High Representative of the European Union for Foreign Affairs and Security Policy, France, Germany, and the United Kingdom. This decision would reintroduce all the EU sanctions taken in connection with the Iranian nuclear program that have been suspended and/or terminated consistent with the Council Declaration and in accordance with regular EU procedures for the adoption of restrictive measures.

In the event of EU sanctions being reintroduced, those sanctions would not apply with retroactive effect. Therefore the execution of contracts concluded while the JCPOA sanctions relief was in force, and in accordance with the EU legal framework, would be permitted consistent with previous provisions when sanctions were originally imposed, so as to allow companies to wind down their activities. Contracts that were permitted when the EU sanctions regime was still in place will not be targeted by the reintroduction of sanctions. The legal acts providing for the reintroduction of EU sanctions would specify the period of time allowed for the execution of prior contracts.

Transition Day

As mentioned above, according to Annex V of the JCPOA, Transition Day will occur eight years from Adoption Day (October 18, 2023), or after the IAEA determines that all nuclear material in Iran “remains in peaceful activities,” whichever is earlier. On Transition Day, the EU will lift the proliferation-related sanctions listed under §§20.1-20.4 of Annex V of the JCPOA, which include arms and missile technology sanctions and the related designations against individuals and entities (discussed above). All of the provisions of Council Decision 2010/413/CFSP which were suspended on Implementation Day will be terminated on Transition Day.

Termination Day

Termination Day will occur 10 years from Adoption Day (October 18, 2025), when all provisions of United Nations Security Council Resolution 2231 (2015) will terminate. On that day, the EU will terminate all of its remaining nuclear-finance and economic sanctions against Iran, which include:

• Metals: The sale, supply, transfer or export of graphite and raw or semi-finished metals (e.g., aluminum or steel) to any Iranian person, or for use in Iran, will be permitted for non-JCPOA purpose activities.
• Software:  The sale, supply, transfer or export of software for integrating industrial processes, including updates, to any Iranian person, or for use in Iran, will be permitted for non-JCPOA purpose activities.

Swiss Sanctions

The Swiss sanctions that remain in place are based on the corresponding UN and EU measures, primarily concerning the arms embargo, trade in nuclear goods and nuclear-related dual-use goods, which will be subject to a license. Also, Switzerland will continue to impose asset freezes and travel bans for a limited number of individuals and entities. The new Ordinance also makes the point that it does not apply retroactively. Consequently, any agreements or transactions that were in breach of the previous sanctions continue to be unlawful.

Key Differences Between US and EU Sanctions Relief

EU persons will now be permitted to engage in most business with Iran because most of the EU sanctions to be removed were nuclear-related. Conversely, US persons will not be permitted to engage in most bilateral trade and business with Iran or the GOI, unless subject to a specific or general license.

Foreign subsidiaries of US persons are now authorized to conduct business with Iran or the GOI and undertake certain activities that previously may have been viewed by OFAC as facilitation of transactions and transfers related to Iran. However, due to the limitations in General License H, such subsidiaries will be more circumscribed, and have certain compliance burdens to assure compliance, that will not need to be borne by offshore, non-US persons. For example, such subsidiaries will need to consider carefully what support US persons can and cannot provide, including the US parent and US expat employees. In this regard, non-US subsidiaries of US banks and insurance companies may face particular challenges in supporting otherwise lawful trade with Iran.

Finally, there are many more Iran-related persons that remain on the SDN List as compared to the consolidated list of EU sanctions targets.

Despite these observations, all persons that contemplate commencing, renewing, or expanding business with Iran would be well advised to have compliance processes to screen for persons that remain blocked by the US or the EU. Notably, even if a person has been removed from the EU list of sanctions targets, should that same person still remain subject to US secondary sanctions, then penalties or sanctions could be imposed by the US government, even if it would be lawful for an EU person to conduct that business.  These complications may prove challenging to manage efficiently.

Furthermore, it should be noted that non-US persons operating with significant US person involvement, or that otherwise have a significant nexus with the United States, may face challenges in supporting business in Iran. 

Conclusion

The United States and the European Union have provided extensive guidance related to sanctions relief and restrictive measures that remain in place, in accordance with obligations under the JCPOA. However, there are many nuances and factual circumstances that will need to be evaluated, and in some cases, additional guidance or opinions from the US government may be warranted for non-US persons.

Further commentary is available on the Steptoe International Compliance blog. You can also follow us on Twitter (@SteptoeIntlReg).